# ADMS4504_midterm exam formula sheet_Winter 2011 - School of...

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School of Administrative Studies Faculty of Liberal Arts and Professional Studies York University AP/ADMS4504 Fixed Income Securities and Risk Management Winter 2011 Midterm Exam Formula Sheet Coupon = coupon rate × par value The coupon formula for a floating-rate security is: coupon rate = reference rate + quoted margin The coupon formula for an inverse floater (or reverse floater) is: coupon rate = K – L × (reference rate), where K and L are values specified in the prospectus for the issue Price of callable bond = price of option free bond – price of embedded call option Price of putable bond = price of option free bond + price of embedded put option The inflation-adjusted principal of Treasury inflation protection securities (TIPS) at the end of the first six-month period is: original par value × (1 + the semiannual inflation rate) 1 + real rate = rate inflation 1 rate nominal + + 1 The monthly mortgage payment is calculated as: ] 1 r) (1 r) r(1 B[ MP n n + + = , where MP = monthly mortgage payment, B = amount borrowed (i.e., original mortgage loan balance), r = monthly mortgage rate (annual rate divided by 12), and n = number of months of the mortgage loan 1

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bond reference the on yield X bond on yield ratio Yield bond reference the on yield bond reference the on yield - X bond on yield spread yield Relative bond reference the on yield - X bond on yield spread yield Absolute = = = rate) tax marginal (1 yield exempt tax yield equivalent Taxable rate) tax marginal - (1 yield pretax yield tax After = × = The traditional approach to bond valuation: price of a bond = PV (coupons) + PV (face value) = t t ) r 1 ( ) r 1 ( r 1 r 1 C + + + × value
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## This note was uploaded on 05/01/2011 for the course ADMS 4504 taught by Professor Lee during the Fall '08 term at York University.

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ADMS4504_midterm exam formula sheet_Winter 2011 - School of...

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